To update our recent post, “Exchange Players File ACA Lawsuits Against CMS,” two new suits were filed by Qualified Health Plan (QHP) issuers selling coverage on the Affordable Care Act (ACA) exchanges. As described in our earlier post, for 2014, QHP issuers paid a total of $362 million in risk corridors charges to the government and asked for payments from the program of $2.87 billion. As a result, the Department of Health and Human Services (HHS) only paid 12.6 percent of the amounts owed. Regarding the remaining two years of the three-year risk corridors program, HHS told issuers that it would not know the total loss or gain for the program until the fall of 2017, and that in the event of a shortfall HHS will explore other sources of funding for risk corridors payments, subject to the availability of appropriations.

The two new lawsuits are described below:

1. Blue Cross Blue Shield of North Carolina

In one case, Blue Cross Blue Shield of North Carolina (BCBSNC) filed suit in the U.S. Court of Federal Claims seeking payments under the risk corridors program, one of the three premium rate stabilization programs, known as the 3Rs, created by the ACA.

BCBSNC claims that the federal government’s failure to make full risk corridors payments breaches the QHP contracts between BCBSNC and the federal government and is also a “taking” in violation of the U.S. Constitution. BCBSNC is seeking in excess of $147 million, less the partial payments made by the government, representing the amount of risk corridor payments owed to BCBSNC for 2014. The company is also asking the court to order the government to make full risk corridor payments for 2015 and 2016. The case was brought under the Tucker Act, which provides a cause of action for claims for damages over $10,000 against the United States.

BCBSNC asserts that the promise of financial risk sharing through the risk corridors program was a significant factor in its decision to become a QHP and to participate in the ACA exchanges. The company notes that it had contractually committed to participate in the exchanges when the government announced that it would implement the risk corridors program in a budget neutral, rather than fully funded, manner. The company argues that there are no provisions in the ACA limiting the government’s obligation to make full risk corridor payments owed to QHPs. BCBSNC also refers to statements in which the government, through HHS, acknowledged its obligation to make risk corridor payments. While Congress specifically targeted risk corridors payment obligations in appropriations bills that prohibited the use of federal money to fund risk corridors, the insurer claims that the failure to appropriate funds does not defeat the obligation that is still in the law to make risk corridor payments in full.

2. Moda Health Plan, Inc.

The second case was filed by Moda Health Plan, Inc. (Moda), an insurer operating in the Pacific Northwest and providing coverage in Alaska, Oregon, and Washington. Moda also filed its suit in the U.S. Court of Federal Claims and makes similar allegations. Moda is asking for risk corridors payment of approximately $89 million for its 2014 QHPs and $101 million for its 2015 QHPs. Moda also claims that the government breached its statutory and contractual obligation to make full risk corridors payments by paying out only $11 million of the amount that Moda is owed for 2014 and not paying any of its risk corridors obligations for 2015.

Moda claims that rates for QHP products were set based on the law’s provisions. Moda also points to other policy changes, such as HHS’s extension of its transitional policy, allowing individuals to stay on certain plans without ACA required benefits, as keeping healthier individuals on existing plans and making the QHP risk pool more expensive to cover.

Moda asserts that the failure to pay the full amount of the risk corridors payments has limited Moda’s ability to sell ACA plans in Alaska and Oregon. Regulators in those states will only allow Moda Health to continue to operate if it raises private capital to replace the loss the of risk corridors payments due in 2014 and 2015. Moda announced it has raised sufficient capital to continue to operate in Oregon for 2016 and 2017, but it will not be offering individual coverage in Alaska for 2017, where it was one of only two insurers offering coverage.

We will continue to update our posts following developments in these cases and additional lawsuits that may be filed by other insurers.

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Photo of David Kaufman David Kaufman

David Kaufman is a Partner at Freeborn & Peters LLP, and he serves as a key member of the Firm’s Healthcare Practice Group.

David has practiced health law for more than 25 years, representing a range of entities responsible for ensuring cost effective and equitable access to healthcare, including health insurers, physicians groups, and regulators.

David has significant experience in federal and state-level regulatory and administrative law gained through private practice as well as in the public sector, serving as General Counsel to the New Mexico State Corporation Commission, Counsel to the New Mexico Superintendent of Insurance, and an Assistant Attorney General for the State of New Mexico.

Admitted to the state bars of New Mexico, New York, California, and Illinois, David’s prior experience in private practice includes work with national law firms in Chicago and Los Angeles, working on transactional healthcare matters and labor and employment issues, as well as Medicare and Medicaid reimbursement.

Before joining Freeborn, David served most recently as General Counsel for Blue Cross and Blue Shield of Illinois, where he was responsible for advising the company on regulatory and business issues in general and on the implementation of the Affordable Care Act.

Photo of Deborah Dorman-Rodriguez Deborah Dorman-Rodriguez

Deborah Dorman-Rodriguez is a Partner at Freeborn & Peters LLP, and is the leader of the Healthcare Practice Group.

Deborah has diverse experience as a healthcare attorney representing insurers, providers, and other healthcare entities. Most recently she served as the Senior Vice President, Chief Legal Officer, and Corporate Secretary at Chicago-based Health Care Service Corporation (HCSC), which operates BlueCross and BlueShield plans in Illinois, Montana, New Mexico, Oklahoma and Texas.

At HCSC Deborah was responsible for providing legal advice and consultation on such issues as federal and state regulatory implementations, litigation, mergers and acquisitions, corporate governance and compliance.  She oversaw HCSC’s legal strategy during a period of unprecedented turbulence in the healthcare industry and helped the company navigate the regulatory and business upheaval associated with the passage of the Affordable Care Act (ACA).

With her experience in serving as CLO of a large organization and in representing healthcare clients over the past 20 years, Deborah understands that no legal decision exists in a vacuum, and that it is vitally important to offer legal advice that is business focused, efficient, practical, and solution-oriented.

Before serving as HCSC’s Chief Legal Officer, Deborah was Vice President and General Counsel of Blue Cross and Blue Shield of New Mexico, an attorney with the law firm of Simons, Cuddy & Friedman in  Santa Fe, New Mexico, where she represented health insurers, physician groups, and other healthcare organizations, Special Counsel to the New Mexico Superintendent of Insurance, and a former New Mexico Assistant Attorney General specializing in health insurance and telecommunications regulatory issues.